Jo Coburn is joined by economist Linda Yueh, plus there is reaction to the Budget from politicians and the thoughts of Robert Chote, Tom Newton Dunn and Polly Toynbee.
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Hello and welcome to
the Daily Politics.
In Yorkshire with Theresa May this
morning, it's all smiles.
But are Philip Hammond's Budget
promises to cut stamp duty
for first-time buyers
and the three billion for Brexit
preparations being overshadowed
by bleak economic forecasts?
The gloomy news was delivered
to Mr Hammond
by the Office
for Budget Responsibility.
Dragged down by low productivity,
Britain will grow far
slower than expected.
We speak to their chairman,
Robert Chote, about the worst
downgrade since 1983.
But economists don't always
get everything right.
For example, they didn't foresee
the 2008 financial crash.
We debate how reliable economic
computer modelling really is.
I did take the precaution of asking
my right honourable friend to bring
a packet of cough sweets just in
And is it "Funny Phil" now
rather than "Fiscal Phil"?
The Chancellor peppered his Budget
statement with a series of jokes,
but did they add to his productivity
in delivering the Budget?
All that in the next hour
and with us for the whole
of the programme today is someone
who probably enjoys Budget Day
in the way the rest
of us enjoy Christmas -
the economist Linda Yueh.
Welcome to the programme.
It looks as if Philip Hammond has
overcome the short-term political
challenge of delivering
a controversy-free Budget.
Yet while the Chancellor has
steadied the Tory ship,
for now at least, the British public
may well feel much
more gloomy today.
The dire state of the public
and the growth
forecasts in particular -
provided him with little headroom
to go on a spending spree.
But he did find money to scrap stamp
duty for the majority of first-time
buyers and also to set aside
£3 billion for preparations
for the UK to leave the EU.
Well, earlier this morning,
the Prime Minister was
asked what she thought
of Philip Hammond's performance.
The Chancellor did a very good job
yesterday. He was setting out how
Willie will ensure we have an
economy fit for the future. But the
Chancellor and I agree that what the
Budget was about was jobs for people
up and down the country. It was
about insuring people are in work
with that income for their family.
It's about building the homes that
they need, and it's about ensuring
that we seize the opportunities for
Linda Yueh, what were
your impressions of the Budget?
was certainly worried about how
significantly downgraded economic
growth was, and this came on top of
the fact that inflation is expected
to be higher than 3%. So the economy
is only going at 1.5% for the next
five years, and we have high
inflation. That is really going to
squeeze incomes. That is why this
Budget was a real change in course
for the government. In other words,
almost everybody I can recall, and
it is a bit like Christmas like me
when it comes to Budget Day(!), they
have always stressed how every
Budget is fiscally neutral, so money
raised is by cutting taxes, but in
this case they wanted to stimulate
the economy. In 2019-20, we were
expecting to run a Budget surplus of
£10 billion. But now after this
Budget, or going to have a Budget
deficit of £35 billion. Half of that
is because growth has become so slow
that we won't get as much tax
revenue. But half of that is because
I don't think the Chancellor has any
choice but to try to spend more in
order to raise growth. And by this
measure, we will not have a Budget
surplus until 2030. So he has
abandoned the idea of getting to a
If we remember, George
Osborne said we would eliminate the
deficit by 2015. So it is going to
be 15 years late. But in your mind,
did he have to add to borrowing in
some way in order to stimulate the
I think he does. The main
problem with slow growth is that it
makes your Budget deficit worse.
Slow growth means there is less tax
revenue. So a lot of what he is
spending is on investment to boost
productivity. Another big portion of
what he is spending it on is to put
out fires around the NHS, preparing
for Brexit and houses, which is
important. If he doesn't raise
growth, some may wonder why he
didn't do more, why he is allowing
the economy to go into the doldrums
at a much lower growth rate for the
next five years.
We are joined now
by the #'s political editor Tom
Newton Dunn and Guardian columnist
Tom Newton Dunn, your newspaper and
the Daily Telegraph give the
Chancellor relatively favourable
responses to the Budget. Why, when
the UK will have one of the slowest
rate of growth in the G7 and
productivity has been downgraded?
Relatively is the key point. We are
not happy with everything he did
yesterday. In terms of the bigger
point you have heard from your guest
in the studio, much of the problems
faced by the Chancellor are not of
his own making. It is the biggest
productivity downgrade since records
began in the biggest flat-lining of
productivity since before the battle
of Waterloo, since 1812 full
stoppages out of his control. So I
would agree with that analysis. I am
not sure he had much choice. He had
to spend that massive £26 billion
war chest he built up, the rainy day
Budget for tough times for Brexit,
which begs the question, what on
earth is the government going to do
next? If you look at the path of
deficit reduction now, it is barely
going down. The deficit is still
going to be 35 billion in a few
years' time. So I think it is
slightly dire straits now. This was
an action by the Chancellor to keep
the government afloat in the short
term, prime pump in all the money he
had into the economy to see what
happens. He was even borrowing out
of his departmental spending
reserve. He was taking 2 billion out
of that to plough into the economy.
So it looks like he has done
everything he can and it is in our
case of waiting to see if it works.
And there is of course the politics
behind that. We will come to that in
a moment. Polly Toynbee, £25 billion
of new spending.
Will that be
welcomed by Labour? It is an
incredibly small sum. We are where
we are because of what this
government decided to do. If you
look at the growth rate, it was
going well when George Osborne took
over. But from his very first Budget
in June 2010, growth fell off a
cliff and never recovered. That is
what happens if you have an
austerity Budget and if you cut into
the headwinds of a recession, and it
got worse and worse. The longest, as
Tom says, that we have ever had, for
the very reason of taking this
antique Ainslie in view. Keynes
would have said to the
counterintuitive thing, to borrow
and spend into a recession. Growth
is what pays off your debt. Growth
and productivity are the only things
that can pay off your debt. So you
have to borrow, like a family would
for a mortgage, in order to increase
your wealth in the longer run.
Politically, let's talk about that,
Tom. He has survived. He hasn't
tripped up on a banana skin, which
he did earlier in the year with his
cut of national insurance
contributions for the self-employed.
Was that the sole aim, to keep his
job and therefore keep the
Yes, not just to
keep his job, but also to keep
Theresa May in Number Ten. It was a
fascinating political U-turn
yesterday, from Fiscal Phil, the man
who prides himself on having a tough
hand on government spending across
all the departments from the MoD to
the Foreign Office, now a year on,
he is spending like Corbyn.
Everything he can get. He is not
spending the way Labour had
Polly should be delighted.
She's muffling her delight.
It is a
very small sum. When he says 15
billion more for housing, it turns
out that it is over five years. It
will build very few homes.
Overnight, people have been
analysing some carefully. When it
comes to Universal Credit, 300
million gets you almost nowhere in
the appalling state of people moving
on to Universal Credit. These are
little token sums. Those who didn't
follow them closely cheered on his
side of the House because it sounded
good. A bit of something for
everyone, a tiny bit for the NHS,
less than half of what it needed.
agree that he hasn't spent things in
the right way, if that is what Polly
is saying. I'm not sure where he
could spend more, because if we
borrow more, the deficit will go up
the market would lose credibility
and then we are into a sovereign
debt crisis. The problem is that
they spent in the short term and
they have sought that Universal
Credit and given money to the NHS,
but they have gone nowhere near
tackling other problems. I was
deeply unimpressed by the housing
measures. And also social care is
another huge problem. They're all
the great demographic problems
facing the country which were left
and tackled and getting worse by the
day. At some stage, some government
will have to tackle them.
Polly Toynbee, on trust with the
economy, bearing all of that in mind
from both of you, why is it that got
the Budget, the Shadow Chancellor
and Labour leader were trusted less
on the economy than Hammond and May?
I don't think that will last long as
people unpick this Budget. But more
to the point, overshadowing all
this, despite this appalling long
recession which has been created by
government austerity policies, we
have Brexit and what is this
government's fault on the fault of
the fanatics on its front benches
and the backbenchers.
Is it not the
fault of the people who voted for
Maybe, but they were lied to by
the likes of you and they still are.
They would say there were lies on
both sides, Polly Toynbee.
turning out that the Remain side
were painfully right about the
dreadful economic consequences and
much worse to come.
Thank you both
Now it's time for our daily quiz.
Shadow Education Secretary Angela
Rayner has announced on Twitter
that she has just passed a rather
important milestone in her life,
so our question for today is...what?
a) She's just bought her first
house, b) She's got a degree,
c) She's passed her driving test
or She's become a grandmother?
If it is her first home, she can
benefit from the stamp duty measure.
At the end of the show, Linda
will give us the correct answer.
So, it was the gloomy
outlook for the UK economy
which overshadowed much
of Philip Hammond's Budget.
The official forecasts for the UK
economy are delivered
to the Treasury by the Office
for Budget Responsibility.
The OBR was established in 2010
by then-Chancellor George Osborne
to end a system under
which the Treasury produced its own
economic growth estimates.
Philip Hammond yesterday
delivered their latest
downgraded predictions as part
of his Budget statement.
Regrettably, our productivity
performance continues to disappoint.
The OBR has assumed, at each
of the last 16 fiscal events,
that productivity growth
would return to its pre-crisis trend
of about 2% a year,
but it has
remained stubbornly flat.
So today, they revised down
the outlook for productivity growth,
business investment and GDP growth
across the forecast period.
The OBR now expects to see
GDP grow 1.5% in 2017,
1.4% in 2018, 1.3% in 2019-2020,
before picking back up to 1.5%
and finally 1.6% in 2022.
The Chairman of the Office
for Budget Responsibility, or OBR,
Robert Chote is here with us now.
You live for these events, but grim,
Dyer, dismal, these are some of the
words being used this morning to
describe Britain's economic
forecast. In your view, how bad is
Basically, the economy has been
growing less quickly than expected
this year, which extends the story
for 2017. More importantly, we have
taken a more pessimistic view over
the next five years. That is a
reflection of the fact that growth
in productivity, which is the amount
of output you get out of every hour
that people work, has been growing
very slowly over the last ten years
relative to the three or four
decades that came before it. A while
back, people would have said you can
probably now that down to specific
reasons related to the financial
crisis. But as this period of
weakness has got longer and longer
the crisis recedes further into
history, some of those explanations
fall away. Therefore, we have
decided to place more weight on this
relatively weak period as a guide to
what is coming. Another reason for
that is that this is also a global
problem and not just a domestic one.
If you look at the way in which our
American counterparts have been
changing their forecasts, the
Congressional Budget office, there
is a similar pattern.
But you have
revised Britain's growth forecast
down substantially since March.
Let's look at the graph. What has
changed since then? You were more
optimistic just months ago, you
would've had those figures then?
When you are looking over this
period, you have to make judgments
as you are going along, and do we
see are there reasons why it'll pick
up? You don't want to focus on the
latest data, we have seen false
dawns come and go. It is more a
question of looking back at this
remarkably unusual period in recent
economic history and making a
response to that. The economy will
grow at less than 2% for the a least
the next five years, how much
smaller will the economy be over the
next five years? Well, I mean, you
basically summed it up there. We
used to get the idea that you would
expect large, mature industrial
economies like the UK to grow by a
bit over 2%, maybe 2.5% a year and
at the moment we are assuming 1.5%
is, as it were the new normal.
Obviously you can add up the
ditches, however many years you go
out to get as large a number as you
How much will be taken out of
the economy? The figures of £65
billion taken out of the economy
over the next five years, are those
the figures that you recognise?
Well, the potential size of the
economy is about 2% smaller at the
end of the forecast horizon than it
would otherwise be. Obviously you
can get as large a cash number as
you like by moving out and making
Right, truth is,
forecasts are rarely correct. You
said so yourself. And they are
routinely revised. It is entirely
possible the Chancellor will prove
It is entirely possible
the outcome is a 50/50 chance as to
whether it is higher or lower. One
of the things we do in the report is
run alternative scone oar yes, sir
for public finances on the basis of
what happens if productivity growth
revives to the rates we saw prior to
the financial crisis and what
happens if basically the last ten
years are the new normal? Now we are
not as pessimistic, there are techno
pessimists out there who say we've
had three industrial revolutions
that's your lot you will not see the
revival in growth. I don't think we
are in that camp. There are reasons
to think productivity will pick up,
unemployment is falling, that will
produce more pressure on firms to
work things more productively so we
don't give up hope of some recovery
That means, the forecast
could be more optimistic. It could
be worse, then?
I think there is a
probability it could go either way.
To give awe rule of them in terms of
what the growth rates mean for the
size of the British economy. You
take the number 70, divide by the
growth rate that gives you the
number of years it takes for an
economy to double in size. So the
British economy grows, at say 2%,
let's keep the maths simple. 7 #0e
divided by two, we expect it to
double in size in 35 years, if it
grows closer to 1%, the economy
doubles in size in 70 years, that's
why the small ditcheses in growth
rates have massive impact in terms
of our living standard.
have a look at Brexit. You said
yesterday the Government provided
the OBR with no meaningful basis on
which to form a judgment on Brexit.
Do your forecasts take into account
Brexit or not?
They did. We made an
adjustment in the first forecast we
produced after the vote to Leave so.
That was the November forecast last
year. And we haven't basically
changed the broad judgments around
Brexit, both in terms. Process, and
in terms of the sorts of
implications it would have for
things like productivity, trade
intensity, migration we did then. So
the announcements we made or the
updated forecast yesterday is much
more about looking at this
historical pattern, the fact that
this is a common global feature,
rather than that we have looked
again specifically at Brexit and
said - we think the outcome of this
will be different from what we
thought a few months ago.
information did the Government give
you on Brexit?
We had and we have
asked for no more than what is the
in the public domain. I wouldn't
come want to come here and say - of
we have produced this set of numbers
that the Government has told me
something about Brexit I can't
share. The reason we ask this, when
we are preparing the forecast it is
useful for us to know if the
Government is going to put into the
public domain new information that
may be relevant, which is why we
And they are not?
Well as you
see we have the information that's
available to everybody else and we
wouldn't want to be doing tonight
basis of private information.
it is not meaningful then, to use
your words f stlnt enough
information in the public domain to
make that judgment?
judgment, as I say, is based on
series of broadbrush assumptions
Which? Think would be consist went a
wide variety of potential outcomes.
Under most circumstances, you would
expect import growth and export
growth to be weaker for a period of
time than they otherwise would be,
that business investment will be
weaker because people will be
uncertain for the period that they
don't know what the end point is
going to be but what we don't done
is come up with a envelope and the
last page conclusion is where we end
up with the negotiations and pinning
the economics numbers to that.
Right. Probably wise. Jacob
Rees-Mogg, the Tory MP says the OBI,
yourselves work on false
assumptionless given to you by the
Treasury, he would like you to be
more optimistic on the tudgets of
Well, I wouldn't describe it
as false assumptions. I think Jacob
would take the view that Brexit
creates the opportunity for a whole
variety of other policy changes that
this gives a greater freedom to do
that which you could then
incorporate. Obviously we are basing
our forecasts on what current policy
S so this is one of the reasons why
it is difficult to nail it down very
precisely, if we get close to a
particular outcome, the Government
may announce other sets of
accompanying policy changes and
maybe Jacob sees scope in those to
provide a better outcome.
have any sympathy with what Jacob
Rees-Mogg says in terms of the
assumptions that both the Treasury
and Office for Budget Responsibility
are working from?
I think it is very
difficult for them. I thi, as Robert
says, you can only work with the
information that is currently given.
Their credibility would be in doubt
if they were to, I think deviate
from that and so, in their
forecasts, as we just said a moment
ago, it could be much better or it
could be much worse. It is based on
productivity but an element of t I
would surely think is also Brexit
because obviously the outcome could
be better or could be worse, based
on however the negotiations go.
There was one phrase, if I may, if I
could pick up with Robert that I
found in your report, it is the idea
of fiscal illusion. This is a really
rather, I think important concept
because we have been talking about
the Budget and the Government says
they will meet their fiscal target
of 2% of GDP of the structural
deficit but they have done by that
selling shares in RBS and in little
bit of what you describe yourself as
fiscal illusion. Does that actually
mean we shouldn't put too much
credence by this illusion that's
getting us to our deficit target?
Well I think it is always very
important. The fiscal illusion is
basically getting at the idea that
there are some changes which can
make the official numbers you are
looking at and that the Government
maybe targeted better, without
fundamentally changing the
underlying health of the public
finances and a key part of our job
is to raise a flag when those sorts
of things happen. Asset sales are a
very good example. If you sell
shares in RBS, for example, you end
up with that reducing the
Government's stock of debt. But in
fact if a Government owns an asset
and sells it for roughly what it is
worth. It is no better or worse off,
it has swapped one asset, shares in
a bank, for a lump of cash. We need
to flag that up. The other big...
decision to count them as part of
the private sector rather than
public sector but do we really
believe the Government's behaviour
if the housing association sector
got into difficulties would be
markedly difficult because a
newspaper of statisticians in
Newport have applied the
international rules and concluded it
is one side of the boundary or the
Is that the illusion?
it helps in both reducing the level
of Government borrowing and the
level of Government debt because you
are taking off the borrowing and the
debt of the housing association. The
Government has been remarkedly
candid about why it has taken the
measures in deregulating the sector
to do that. They gave evidence to
the House of Lords to say - we are
doing this to persuade the
statisticians to get this off the
Criticising the Government's
stamp doubty property, you say house
price also go up. Do you accept it
is quite a political statement to
make within hours of the Budget
being delivered Its not a criticism.
Now not saying it shouldn't happen.
It is explaining how it'll feed
through into the economic and
fiscaler if cast. You can certainly
take the view that the policy is a
good or bad policy. We have to
describe what impact it has.
that is a critcy. If you say the
bhan gainers are people who own
their own proort when it is supposed
to help first time buyers who
haven't been able to get up and that
house prices will go up and act as a
stimulus. That's a criticism
is a statement of the facts. If
house prices go up. It gives first
time buyers who purchase properties
that they otherwise wouldn't have
blown able to afford but they are
more expensive and I expect with
#23is time buyers, it is the act to
get on the ladder even if the
property is more expensive, than a
good thing about that policy. I
wouldn't read it that as a criticism
of the policy it is a criticism of
what it does.
The growth forecasts may have been
revised down but the Chancellor
still had some money to give away.
Let's have a look
at the key policies.
Philip Hammond set aside £3 billion
over next two years to prepare
the UK for every possible outcome
as the UK leaves the European Union.
For housing the Chancellor
outlined a £44 billion
government support package,
to help meet a government target
of building 300,000 new homes a year
by the middle of next decade.
And stamp duty will be abolished
immediately for first-time buyers
worth up £300,000.
The young person's railcard will be
extended to 26-30-year-olds
from next year, saving a third
on off-peak railfares.
The NHS in England will receive
an extra £2.8 billion worth of extra
funding for front line services.
With £350 million available
immediately to address
pressures over this winter.
The Chancellor proclaimed "maths
for everyone" with £600 for each
additional pupil taking A level
or Core maths.
A £40 million teacher training
fund will be established
for underperforming schools
in England, working out
at £1,000 a teacher.
And changes to Universal Credit
to bring the overall waiting time
down from six weeks to five.
Joining us are the Justice
Minister Dominic Raab
and the Shadow Economic Secretary
to the Treasury.
Welcome to both of you. Jonathan
Reynolds, I didn't say your name,
which is important, of course.
Dominic Raab, Philip Hammond started
his statement on the Budget
yesterday saying will - there is a
bright future for Britain. Are the
resolution association disagree say
there'll be 17 years of pay
Resolution Foundation also said that
those on the lowest I parks the
proportion on the lowest pay is at
its lowest level since the 1980s. I
think we have had some headwinds. I
think the economists are not quite
clear between themselves as to some
of the forecasts which is
interesting, the conversation you
have just had. The reality is there
are all these predictions of doom
Ian gloom and precession and we have
modest growth inhe has put in a
modest stimulus in and things like
the £08 billion extra in partnership
with the sector on tech and R&D that
will help boost in the long-term
productivity. He dealt with the
issues around here and now,
extending personal allowance, fuel
duty and laid foundations to deal
with the productivity. I think that
compares the credible, balanced
approach he took with John McDonnell
this morning on the Today programme
saying spending and borrowing more
pays for itself.
Right, but wages
won't return to the 2007 levels,
pre-crash levels until 2025. That
squeeze is going to really hurt
families. And it's the longest fall
in living standards since records
began. Is that something you are
I think really conscious
of the priors on low and middle
income fwamlies but I would say the
average tax pay letter take home
£1,075, a basic rate taxpayer than
under Labour Government in 2010. We
had that statistics from the
Resolution Foundation, the
Except one-third of
households, this is what you are
saying the poorest third of
households are set to be more
thanneds 700 a year worse under the
Under the enfundamentals of
Answer the question
will answer the first then come
back. Inflation has reached its peak
of 3% in October and is now coming
down, so it'll ease the pressure.
If you listen to what the
Bank of England said last week n
October the 3% was the peak and
it'll start to come back down.
hasn't come down yet
I'm in the
doubting there are pressures, but it
is not all doom and gloom and it was
great to here a Conservative
Chancellor who didn't vote for
Brexit say - come on, there is there
are risks, but even greater
opportunities and we will grasp
them. We need candour in this
Well -- can do. Well you
talk about can do but he talked
about a bright future for working
families and if they are not looking
forward to wages getting to the
stage they were prethe crash, what
are they going to be looking forward
I don't accept that. The
Resolution Foundation is a
think-tank and does good work. And I
have cited them.
Cited the bits you
like and not what you don't. Can you
explain that poorest households are
going to be £700 a year worse off?
We went through and it was
interesting hearing Robert Chote
hark back to the crash, but we have
dom through, employment at record
highs, three-quarters new jobs
full-time and on things like the
national living wage, the extension
of the personal allowance,
cancelling the planned fuel duty
hike, we are doing things that deal
with the pressures of the here and
now, but also take the long-term
investment like infrastructure
technology, that will boost wages
through productivity gains.
the minimum he could the with
headroom he had which is little when
we look at big figures, you talk
about the national living wage but
George Osborne pledged it would
reach £9 by 2020, that will not
Hold on. We are in 2017,
it is going up to April £7.83. We
have produced that
Well that's forethe
Chancellor and we've scrutinised
what he said yesterday. We can say
it is going up to £7.83. We are
cutting the amount of income tax
people are pay, the average taxpayer
but over £1,000 each year compared
to 2010 but we have to be balanced
and responsibility. We cannot do as
John McDonnell and Labour said first
thing this morning - by throwing
money at problems, it is not
credible. What he has done in
challenging times is a balanced,
But balance in favour of whom?
Philip Hammond has said he wants to
put £3 billion aside for Brexit
preparations, but only £350 million
extra funding for the NHS this
winter. Which is more important to
They are both important.
why has Brexit got £3 billion and
the NHS only 350 million?
from a standing start and
contingency plans for Brexit. The
NHS is getting huge amounts of extra
Does the NHS not deserve more
I think the NHS is getting
Not the 4 billion
that Simon Stephens said is
We have followed Simon
Stephens' route map to this. More
money is going in, but we also need
to reform the NHS. Compared to 2010,
someone is paying two thirds less
income tax. The millionaires are
paying 14% more.
Let's look at the
other bits of this balanced
approach, Jonathan Reynolds. Do you
oppose the scrapping of stamp duty
for first-time buyers?
If a Labour
government presented the figures we
saw yesterday, Dominic, who I have
tremendous respect for, would be
laying into those figures. The stamp
duty cut was an Ed Miliband policy
It wasn't just his, it
was proposed in your manifesto. So
you support it?
Yes, but you have to
combine it with mixed supply. The
beta site, £3 billion, is on the
stamp duty cut. Unless you are
boosting supply % and having more
homes for social rent, it will only
make the situation worse.
much more would you spend on
In our investment
programme, we have said we would put
more investment in. The allocation
for housing is 25 billion. The
increase for housing would be 8
billion, because that gives you the
chance to have more homes for social
How many more homes for social
rent would later be proposing?
So you are going to be
adding to the money that the
government would borrow. Do you
think it is acceptable that the
Shadow Chancellor couldn't cite what
the current levels are in terms of
servicing the debt, never mind what
they would be under Labour?
think it's fair to ask the Shadow
Chancellor to pick out a figure from
the red book.
Hang on, which figure
in terms of the current levels of
servicing the debt?
The £46 billion.
Then you can do it. Is it acceptable
that the Chancellor can't?
would be a variability to the cost
of borrowing under a Labour
government. The point that John is
trying to make, which is worth
making, is that if you look at the
crucial topline news in the Budget,
the big downgrade to growth, the
country has to do something
different. And bringing forward
investment into infrastructure,
housing and transport is the right
thing to do. If you look at the long
term effect on the tax base of this
continuing, we will have huge
In terms of money for the
NHS, did you welcome the £2.8
billion proposal by Philip Hammond?
We want to see more than that. We
want to see something equivalent to
what the NHS itself has said it
needs. It is not always about extra
borrowing, there is also a point
around choices and priorities. More
money going to Brexit that the NHS
does not sound like the right thing
to do. More money going into alcohol
duty than fixing Universal Credit,
those are bad choices. If look at
the envelope the Chancellor had, he
has made poor choices.
What do you
say to it being not the right
You have a vast credibility
gap between a balanced approach, yes
we need a stimulus, but with overall
public finances. We have a Labour
Shadow Chancellor who reckons that
spending and borrowing pays for
itself. That is just not credible
and it is dawning on many people
that these are false promises. It is
What was a con about George
Osborne saying he would eliminate
the deficit by 2015 and it will now
not be eliminated until 2031.
that was a target.
A target that you
miss every year in terms of
eliminating it. And it was to be £35
billion. When you talk about trust,
what is the point of saying to
people, bear the pain now of
austerity because we are going to
remove it for future generations? It
is still going to be there.
hold on. That is based on
projections made in 2010. We would
say, look at the 3 million new jobs.
Look at the extra money we have made
sure working people have in their
pay packets. Look at the extra
investment in the NHS. If you
compare that what John McDonnell
said this morning he said that
spending and borrowing pays for
itself. That be credible.
government spending and borrowing
now paying for itself?
has not hit rock bottom.
is, if you can get a bigger return
for the taxpayer by borrowing at
record low levels, that is something
you should consider. And that was
what was ruled out under the George
Osborne has Charter. Now members of
your Cabinet are coming forward with
plans on housing...
But not to say
borrowing pays for itself.
earlier that that is perhaps what
Philip Hammond should have done, to
have thrown away the red box and the
red book in terms of constraint and
I would reconfigure the
red box. The government has not
separated out current spending from
capital spending. The only way to
raise productivity, and it is a
puzzle, but the key thing the Bank
of England identifies is that you
have to raise investment. Investment
in things like hard and soft
infrastructure and human capital, if
you count that as capital spending,
you can borrow at very low rates and
invest in something which will be
paid off in the future. And you can
separate out from current spending
so that you don't scare financial
markets. That is something where he
could have done more, given how dire
our productivity prospects are. But
it does require reconfiguring how we
think about the deficit.
Labour's plan credible if you
reconfigured the red box in the way
I think their plan goes a
bit further from the manifesto. The
sense of borrowing and nationalising
major infrastructure, there is a
huge cost associated there.
they have not given us.
Yes. That is
a problematic area to me. I am
describing something which is more
straightforward. Private firms are
not investing in part because public
investment has been slashed to less
than 2% of GDP. It used to be over
3% of GDP before the crisis. Sorry
telecoms company cannot put in a
better fibre line unless the
government gives them that basic
structure. We can't have better jobs
in the future unless there is more
investment in technical education.
That is why there is a good argument
for putting investment in human
capital, people as well as hard and
soft infrastructure, and that would
go a long way without going into
some of the more politically
But it is
interesting that Labour still trails
in terms of Corbyn and McDonnell
versus Hammond and May when it comes
to trust in the economy.
eight points behind.
If you look at
under 50s, we now lead on the
economy, so we have seen a change in
perception. In 1997, we were
trailing on the economy and we still
won a landslide victory.
what you are predicting?
go as far as that!
Thank you both
Now, "Trust me, I'm an Economist" -
it's not a phrase I suppose my guest
of the day Linda Yueh utters
And economists have had
a rough ride of it of late.
Blamed for not predicting
the financial crisis nine years ago,
a good number then got criticised
for scare-mongering over what might
happen after Brexit.
But is that fair?
It was a question that baffled lots
of us, even the Queen, who famously
asked, how did no one predict the
financial crisis? She got an answer
of sorts, and then said what we were
The people have got a
bit lax, have they?
Maybe it wasn't
A bit like geologists
and earthquakes, we know where the
fault lines are, we have a good idea
of where the earthquake will happen,
but within a few years, we don't
know exactly when and which region
will be the most. It was like that
in the lead up to the financial
crisis. If you read any of the
journals and policy papers, it was
clear that we understood the risks.
We just didn't know exactly where
the earthquake hit.
Today a woman
rang the BBC and said she heard
there was a hurricane on the way.
Don't worry, there isn't. Here is
another analogy. Economists can
forecast based on certain
conditions, but we shouldn't think
of them as predicting the future.
There is another problem too.
essential fear of financial
economics is that you can't predict
things like the financial crisis
because it is in the nature of such
predictions that the result of
predicting it in a reliable way
would mean that it wouldn't happen.
So if I tell you the stock market is
going to drop by 20% tomorrow, then
you will not have your money in the
market tomorrow. So it will drop the
day before or the day before that,
so I will not be right and the crash
I predict will not happen.
that what happened after the EU
You have a situation
today where you have a Conservative
Chancellor and a Labour Chancellor
both saying to the country that
there will be a big hole in the
Brexiteers called a
product fear, a consensus among
economics types including the then
Chancellor that Brexit and the vote
to leave would damage the British
Economists overplayed their
hand significantly on Brexit in two
key ways. They claimed to be experts
about matters that they weren't
expert in, namely what some of the
political implications would be both
of staying in the EU and of leaving.
And secondly, when things didn't
play out as they expected, they
tried to suggest that that was
something to do with the economic
models that they were using instead
of taking on the chin that they had
got wrong what the economy believed
would be the long term implications.
Economics and predictions. That's
what this was about yesterday. The
Budget was full of forecasts and
policies based on forecasts. But
maybe if the politicians who don't
use economics properly.
they make may not fully reflect the
consensus of economics. They may be
a result of their own private
preferences, or the result of the
way they have to confront their own
parties, or the political agenda in
front of them. It seems to me that
the best politicians are ones who
can understand what the science
says, whether it's on global warming
or smoking or the impact of
introducing trade costs, and
confront that and design policies
designed to deal with the real
When it comes to predicting,
maybe it's not economics at fault,
but the economists themselves,
politicians and the public's
unpredictable behaviour that makes
it so difficult.
Joining us now is Joe Gladstone,
a behavioural economist
from University College London.
Why do economists keep getting it
One reason is that it is
difficult to predict the future with
economic models because economists
want to have a theory of everything.
They want to turn people into little
robots that always try and maximise
their own well-being. But you and I
know that that is not how people
behave. Humans are irrational. They
make mistakes, and if these models
don't take that into account, what
do they tell us?
We know that humans
are not rational, so what is the
point of all this forecasting?
not sure sometimes. You know the
phrase that economic forecasting
exists to make astrology look
respectable! The problem with policy
is that you need to have some basis
to decide how the economy will be in
the future. There is a need to make
forecasts, but I don't like the
excessive reliance on forecasts. The
other thing I don't like about
forecasts generally is that they
rely too much on simple models of
how people, if you have a tax cut,
people will spend more, but that is
not true. A lot of people save if
they are struggling. Why would you
spend more even if you have a tax
cut? If you put that together, it
requires rethinking the basis of
economic forecasting, but also
accepting that the likes of the
Treasury and the OBR need something
to say the economy is expanding or
shrinking, but we should not put too
much stress on it being our future.
And it is not just people who don't
behave in a linear way. Markets
don't always function properly. Some
would say they haven't functioned
well at all over the last decade.
That is true. People and markets are
imperfect and these models are not
good at distinguishing between them.
If we could all predict the future
with some wheezy model, we would set
up a hedge funds and be a
billionaire next year.
I would not
be sitting here.
It is just that
complexity, the chaos of all these
individuals with their complex minds
and personalities and
individualisms, and then the market,
which is also complex and follow
normal ways of doing things.
People want to see evidence of what
policies are based on and there has
to be some forecasting. Do we help
the situation by criticising it and
dismissing and saying - all
forecasts are wrong, so I'm it never
going to believe anything you say or
does it make the job of economic
forecasting more difficult?
have to accept the world is
uncertain and we cannot know with a
huge degree of accuracy what is
going to happen in future, we have
to accept that. The best models we
have are probably from economists,
there is not an alternative, we
cannot go to psychologists or
sociologists and say - tell us what
the economy is going to do. We have
to accept the limitations of what we
have and figure out how you can
explain that to the public that the
world is uncertain and this model is
the best thing we have.
be better off without economic
forecasting. How could it be be made
better? ? I think one way it could
be made better is right now it tends
to extrapolate a lot from the past.
Almost every single model is saying
what happened in the past.
have not had a recession in the last
eight years you are unlikely to
predict one. So the first thing to
do is redress the reliance on
ex-traplation. Looking at Government
spending gives you a better in the
of US it is called of dynamic
scoring. You put it policy out and
cost tonne that basis.
Do you need
more time? Do you have a tax cut or
rise, when policies come and you
have in place for one or two years,
is it long enough to say it it has
worked or failed
It is tricky and
what I'm described also takes a lot
more preparation before you roll out
policies so you can decide on the
impact but politicians work on four
or five year cycles, and it
generally isn't a luxury they have.
And everybody says they have their
own economic expert to back up
whatever their policy is. You can
pretty well forecast and predict
whatever economics you like, because
there will be an economic expert to
back it up?
There is varyings in
opinion and it is possible to find
an speshgts who is likely to support
your case. But at the same time,
there is Bert and worse science.
Things are moving forward there, a
gold standard in terms of these
field experiments or natural
experiments, so, it isn't like we
are just walking around in the dark.
There is the science out there. The
problem is that that science is
complicated. It is difficult to
explain to the public. It is
difficult to turn into a policy
sound bite and so, that's really the
problem we have in politicians using
Thank you very
much. Well economics may be
difficult to forecast but I have to
say politics hasn't been that easy
to forecast either.
Is Germanys facing one of the worst
political crisis of its modern
Angela Merkel's party have failed
to form a coalition.
Last weekend, efforts to forge
a three-way coalition
with the pro-business Free Democrats
and the Greens collapsed,
raising fears across Europe
of a prolonged leadership vacuum.
Today Germany's President has urged
the social Democrats. Led by former
EU president, Martin Schulz, to
reconsider their oppies to joining a
new grand coalition with their
Christian Democrat party. What are
the options for Germany now and what
impact does it have for the UK and
Joining me now are journalists,
John F Jungclaussen from Die Zeit
and Stefanie Bolzen from Die Welt.
How unpress departmented is the
situation in Germany now?
unprecedenteded. We haven't had this
kind of situation but there are ways
to deal with T the constitution is
very clear about the next step that
needs to be taken here. -- to deal
Angela Merkel has suggested
she would rather have another
election. Well that's what she said,
than govern in a minority
government. How likely is it for new
elections? The is fluid. I wouldn't
bet on anything for the time being
but doesn't look like a new election
now. The reason being - for today,
tomorrow we could be in a different
situation. I like the caveat, in
temples predists. Dump -- in terms
But Angela Merkel is
in a comfortable position because it
is the SPDs, they cannot risk
elections, because the German public
sees them as the one that is have to
move. If they don't come into a
co-laylies with Angela Merkel or
support a minority Government and
therefore trigger new elections they
will be hammered in 2018
That's the dilemma for the SPD. Is
Angela Merkel really in a
comfortable position. This must have
come as a shock, she was said
tonight leader to ruffal trump. And
it hasn't happened?
Yes -- to rival
Donald Trump. Well before the last
election her personal popularity
ratings were extraordinary. Over 52%
of the population favoured her as a
leader. Of course that was not
reflected in the outcome of the
election. But there is a great deal
of goodwill that people have and
that's why I think she would opt for
a new election, if she had it her
Right she's obviously banking
on the fact that people voted for
parties perhaps thinking she would
walk it, would put their vote behind
her but it is a massive gamble to go
for another election?
it is something unprecedented in
Germany. The Germans don't want T
they don't want instable. Thankfully
the economy is going well. Data
growth is coming, low unemployment
it is not the economic pressure for
the time being but talking about
Angela Merkel, she has been there
for 12 years now, it was always to
be expected sooner or later people
thought she ought to go. The
question is, when is she going and
there is no successor at the horizon
for the time being.
spends time putting coalitions
together and we don't quite have
that experience in this country.
Whep we had the coalition it
happened relatively quickly compared
to Germany. That does leave a bit of
a vacuum doesn't it, in terms of
Europe and when we look at Brexit,
what impact will it have?
think it is one thing one cannot
repeat often enough on British
television, is that Brexit is not on
top of the list of any German
We've gathered that.
Good. I think what is more important
is issues that are coming up in
Europe next year, such as elections
in it lane the threat of the rising
-- Italy and the threat of the
rising populist right there. The
euro needs to be sorted out. There
is the issue of migrants who are
still drowning in the Mediterranean.
What Brexit has done to Europe, is
that Europe is coming closer
together. The 27 are closing ranks,
very successfully, I think. And
there are a lot of issues that need
sorting out and I think for those
issues, a weak government in Berlin
is a lot more difficult to sort out
than Brexit. I don't think Brexit
will be affected by this situation.
Except if the SPD under Martin
Schulz, the left-of-centre party
decide they want to get into a
coalition and there was to be a
grand coalition with Angela Merkel,
we know Martin Schulz is not a fan
of Brexit. Could he make things
difficult if he were part of a if
you tour German Government?
end of the day in Britain there is a
lot of delusion about how much would
change if the Liberal Democrats
pro-business would be in the
coalition. It always be a very prong
pro-European Government. It won't
make much of a difference. It won't
make a difference for the December
council, whether Angela Merkel is
there or not. It is not in the hands
of the Germans to say - OK, you pay
£10 billion less, it is not.
But the Germans are so important.
There was much made of the
relationship at the same time
between David Cameron and Angela
Merkel and people thought she'd let
him down and there is still sort of
hope that Angela Merkel will be the
ones that will go over the heads of
everybody else and perhaps push
things along. When she's distracted
and it is not top of her list, has
A lot was made of it in
Britain, yes, but not so much in
Germany and Berlin or Brussels.
you worried about this dilemma,
really in Germany and this Ince
stability while -- instability while
she tries to decide for a coalition
or another election?
Well I'm more
worried now. Well Michel Barnier,
the EU negotiator he has delegated
authority a mandate given to him to
negotiate so on aspects that Britain
would like something more bespoke,
whether around Northern Ireland or
Ireland or the divorce bill or trade
deals, the thought was he could get
that authority, perhaps, from Merkel
or from Macron and so people should
matter. But if it turns out that the
EU is really, a really unified
force, and it doesn't matter who is
actually in charge, I think that's
going to make the British position,
you know, harder to read.
whatever point of the process you
look at. We are in the position
where Britain has to come up and pay
and agree on citizens' rights and
thor Northern Irish bored in phase 2
we might be in different territory
because national interests will kick
in and persons and people will
decide but that's not the point yet.
Right, thank you both very much.
So is it now "Funny Phil"?
That might be overstating it.
The Chancellor belied his
"Spreadsheet Phil" nickname
as he peppered his Budget statement
with a series of jokes
at the expense of everyone
from Theresa May and Michael Gove
to Jeremy Clarkson
and Lewis Hamilton.
I did take the precaution
of asking my right honourable friend
to bring a pack of cough sweets,
just in case.
just in case.
Mr Deputy Speaker, I shall first
report to the House on the economic
forecast of the independent OBR.
This is the bit with the long
"economicy" words in it.
Mr Speaker, if they carry
on like that, there will be plenty
of others join Kesa Dugdale
in saying, "I'm Labour,
get me out of here."
Mr Deputy Speaker, I know that
Jeremy Clarkson doesn't
like them, but there are many other
reasons to pursue this
technology, so today we step
up our support for it.
Sorry, Jeremy, but definitely not
the first time you've been
snubbed by Hammond and May.
More maths for everyone.
Mr Speaker, don't let anyone say
I don't know how to show
the nation a good time.
Joining us now is the the former
Labour media adviser
Ayesha Hazarika, who now works
as a stand up comedian
and Evening Standard columnist.
Someone shouted out - it's the way
you tell them, Phil. I suppose
delivery is everything. But actually
maybe from a low bar, some of the
jokes weren't bad?
I'll say fair's
fair, the bar is low, I know that, I
used to write jokes for the House of
Commons, it is like you are limboing
underneath it. I thought he did
quite well. Remember the odds were
stacked against him. He had a
horrific lead into the Budget,
everyone saying it is the worst
Budget preparation in the history of
time, he is hopeless for the chop.
So you forget, the House of Commons'
Chamber is actually mainly really
dull T comes alive on a number of
occasions and Budget Day is one of
them. It becomes a stage. It becomes
a place of theatre and what people
want is good political lines but
they want to have a bit of a laugh
as well. They at least want their
principal to try to make jokes, you
know the phrase "God loves a trier."
It is true on Budget Day in the
House of Commons.
How hard do you
think his joke writers had to work?
I would suspect they would've spent
a vast amount of time working on the
jokes. I actually got a nice text
from one of his advisors late last
night saying - gosh, you should have
seen the ones that didn't make the
I'd love to have seen those,
actually. You could use them
Steady, on, Jo.
Sorry. In terms of delivery you can
only work with what you've got. Does
he deliver it well or not?
look, he is not a natural gag
machine, not Phil Giggles Hammond
but the way he worked them well, the
maths jokes, the best way if you are
not funny is to be self-deprecating,
everybody thinks he is dull and
boring, so he used that. But
remember, jokes don't mask the truth
behind the politics.
Do you think it
was a dissfraction the grim
I think part of it must
have been. Because he delivered the
jokes pretty early on and I think a
lot of us were sitting there
watching thinking - wait, did he
He did it in about
one minute and then all talked
I suspect this is all part of
the delivery. We'll face a brighter
future, let's accept some of this
and maybe have a few giggles. I have
to say sometimes I groaned a bit.
What about the strep sill, I thought
it was too staged -- strepsil.
was a bit laboured. Remember with
William Hague, it was a bit
Time to find out the
answer to our quiz.
The question was, what important
has Shadow Education
Secretary Angela Rayner
just passed in her life?
Was it: She's just bought her first
house, she's got a degree, she's
passed her driving test or she's
become a grandmother?
the correct answer?
She has become a grandmother at
the grand-old age of 37.
Is that what she wants to
That's all for today.
Thanks to our guests.
The economist Linda Yueh keeps Jo Coburn company throughout the programme. As well as reaction to Philip Hammond's budget from politicians they get the thoughts of Robert Chote from the OBR, Tom Newton Dunn from the Sun and Polly Toynbee from the Guardian.